Australia’s construction work done rose 0.9% in the first quarter, according to the latest actual data. The outcome was above expectations and points to a firmer near-term level of activity in the sector than forecast.
In nominal terms, the actual reading was 3.4%. Together, the quarterly lift and the stronger actual measure suggest construction output maintained momentum into 1Q, offering a supportive input for assessments of domestic demand and building-related conditions.
Implications For GDP And RBA Policy
This unexpectedly strong construction data suggests the Australian economy had more momentum in the first quarter than anyone thought. It significantly increases the likelihood that the upcoming Q1 GDP figures, due in early June, will also beat expectations. We are revising our internal GDP forecast upwards based on this release.
The data makes the Reserve Bank of Australia’s job of fighting inflation much harder. With the latest Q1 2026 CPI still high at 3.8%, well outside the target 2-3% band, this economic strength reduces the chance of any interest rate cuts in 2026. In response, we are adjusting positions in interest rate futures to reflect a higher-for-longer cash rate.
Market Reactions And Strategy Outlook
A more hawkish RBA is supportive for the Australian dollar. The AUD/USD has already climbed above 0.6750 following the news as the market prices out rate cuts. We believe there is further upside and are considering buying call options to target a move toward the 0.6900 level in the coming weeks.
The surge in construction work implies robust demand for raw materials like iron ore. This reinforces a bullish view on commodities, making futures contracts for key industrial metals look attractive. While this may boost materials stocks, the broader ASX 200 index could face pressure from the prospect of sustained high borrowing costs.
This situation feels very similar to the pattern we saw through 2024, where resilient economic data repeatedly pushed back the timeline for expected rate cuts. The primary mistake then was positioning for an easing cycle too early. Therefore, our strategy is to trade with this economic strength rather than bet against it.
